Analyst Initiations of Coverage and Stock Return Synchronicity
University of Houston; Rice University
Darren T. Roulstone
Ohio State University (OSU) - Fisher College of Business
Eric C. So
Massachusetts Institute of Technology (MIT) - Sloan School of Management
April, 25 2012
Accounting Review, Forthcoming
We examine how the information produced by analysts when they initiate coverage contributes to the mix of firm-specific, industry-, and market-wide information available about the firm. We hypothesize that the first analyst to initiate coverage provides low cost market and industry information allowing him/her to follow more stocks, whereas subsequent analysts provide firm-specific information to distinguish themselves from existing analysts. We use stock return synchronicity to measure the mix of information available about a firm, with higher synchronicity indicating more industry and market information. Coverage initiations of firms with no prior analyst coverage increase synchronicity suggesting that analysts produce industry- and market-wide information. In contrast, analysts initiating coverage on firms with existing coverage appear to focus on producing firm-specific information as these initiations lead to reduced synchronicity. Together, our findings indicate that the type of information analysts produce at initiation depends on the information provided by other analysts.
Number of Pages in PDF File: 44
Keywords: Stock Return Synchronicity, Financial Analysts, Analyst Initiations
JEL Classification: G10, G14, M40, M41Accepted Paper Series
Date posted: April 26, 2012
© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo4 in 0.485 seconds